Swiss Franc back on top but for how long?

The Swiss Franc may be a low yielding currency carrying negative interest rates, but of late its haven status has apparently restored some demand for the CHF.

Briefly touching the infamous 1.2 level a few months ago, EUR/CHF has dropped in an impressive display from the Franc.

All sorts of political angst have got the CHF moving, and an apparently disinterested SNB might be closely watching but they appear to have remained on the sidelines for now.

How long might this last for? It isn’t clear what the tolerance of the Swiss National Bank is, but SwissQuote believe that things are not at that level for a while yet,

“In our opinion, the Swiss franc hasn’t appreciated enough against the euro to trigger a SNB’s intervention. Monday’s report will give us the answer. The currency pair currently stands at 1.1360, which is well above the implicit 1.05 “floor”.”

In a forecast for the week ahead, analysts at SwissQuote noted that the Turkish and Italian angst have reignited demand for the short side of the Euro to Swiss Franc exchange rate as mounting crises have caused some real haven demand in the Forex marketplace,

“Over the last few days, the Swiss franc made a solid come back in the wake of worsening crisis in Turkey and mounting worries that it would spark emerging market contagion. After falling more than 5% in early summer as Italy’s elections damaged further European unity, EUR/CHF fell another 4% over the last month”

Euro focus back on Italian politics

The rise of a populist government in Italy is finally being addressed by the markets. Regular readers on Exchange Rates UK know we got ahead of this problem a long time ago (even before the government had even been elected) and the slide in the Euro has been quite dramatic. SwissQuote’s article directs us to the fact that it is the budget plan in particular which is really causing some worries,

“The new government is expected to provide a budget plan for 2019 indicated how closely officials would stick to their expensive spending promises. Any extreme unfunded deficit spending plan will likely add to domestic turmoil and conflict with the EU.”

Things are therefore quite uncertain for EUR/CHF, but dovish policy may have ultimately run its course for the Franc. The SNB can hold on for only so long, and the rush to get in on the ground floor makes this a very precarious situation for the Swiss bank who must somehow engineer a sustainable exit from unnatural negative interest rates.

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